The People’s Bank of China (PBoC) cut their reserve ratio requirement (RRR) for lenders by 50bps to 19.50% overnight. The decision, the first reduction seen since May 2012, has the capacity to inject around ¥600b in additional liquidity into the financial system should the demand for loans be there.

A terrible session for crude oil overnight with the front-month WTI futures slumping 8%. The decline, the largest in percentage terms since late November, was sparked by a report showing US crude inventories increased by an additional 6.33m barrels to 413.06m last week, the highest level seen on record.

US private-sector hiring cooled in January with the ADP national employment report revealing an increase of 213k. While below the upwardly-revised 253k pace of December and expectations for a gain of 225k, the figure was the fifth-consecutive month that an increase greater than 200k has been reported.

US service sector growth accelerated at a faster pace in January with the ISM’s non-manufacturing PMI gauge rising to 56.7. While higher than the 56.5 level of December and expectations for a decrease to 56.3, in what is a slightly concerning outcome given the composition of the US labour market, the measure on employment fell to 51.6 from 55.7, the lowest level seen since February.

US mortgage applications rose modestly last week with the MBA mortgage market index increasing 1.3%. A 2.5% lift in refinancing was enough to offset a 2.3% decline in loans for new purchases as the average 30-year mortgage rate fell 4bps to 3.79%.

Eurozone service sector activity grew modestly in January with Markit’s PMI gauge rising to 52.7. The reading, higher than the 52.3 flash estimate release in late January, was a sharp improvement on the 51.1 level previously reported in December. Stronger reading for Germany, Italy and Spain were enough to offset another worrying performance from France.

Germany 54.0 (Flash 52.7, Expected 52.7, Prior 52.1)

France 49.4 (Flash 49.5, Expected 49.5, Prior 50.6)

Italy 51.2 (Expected 50.0, Prior 49.4)

Spain 56.7 (Expected 54.9, Prior 54.3)

Eurozone retail sales grew 0.3% in December. The reading, higher than the 0.2% increase expected, left the annual rate at 2.8%, the fastest expansion seen since March 2007.

Growth in UK service sector activity accelerated at a faster pace in January with the Markit/CIPS PMI gauge rising to 57.2. The reading was higher than the 55.8 level of December and expectations for an increase to 56.3.


The Day Ahead (AEDT)

The ASX 200 looks set to inch lower this morning with SPI futures pointing to a fall of 10pts on the open. While the energy sector looks like it’ll be unable to assist, should the index finish higher today it’ll mark the longest stretch of consecutive gains seen since October 2003 (11). Whether or not it is achieved will largely come down to the performance of the two largest components within the index, financials and materials. Both have risen at breakneck speeds in recent weeks and are short-term overbought. While there are signs of buying fatigue starting to emerge, particularly in the former, one suspects that the performance of Chinese equities following the PBoC’s RRR cut overnight will largely determine how they, and the overall index, will perform today.

Having reached as high as .7848 in early European trade the AUDUSD has followed the crude oil price lower overnight with the pair currently fetching .7773. Aside from the retail sales release that will provide short term direction at 11.30am, unless the figure is well away from estimates it’ll likely be movements in crude oil futures, a quasi-gauge for US Dollar strength in recent weeks, along with the performance of Chinese equity markets when they open at 12.30pm, that will determine how the pair will trade today. Support is found at .7740 and .7720, resistance kicks in at .7800 and .7850.

Australian retail sales for December will be released at 11.30am this morning. Markets are looking for an increase of 0.4% with the quarterly, inflation-adjusted figure, expected to rise 1.0%. Earlier in the session we’ll also receive HIA new home sales data for December.

Data releases this evening include Q4 productivity and initial jobless claims from the States, Canadian international trade along with Russian CPI. On the policy front the Bank of England announce their February monetary policy decision – no change is expected.


Market Map Feb 5 2015


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